TMI Blog2014 (3) TMI 1006X X X X Extracts X X X X X X X X Extracts X X X X ..... s) Chandigarh dated 09.07.2009 relating to assessment year 2000-01 and 2001-02 against the order passed under section 143(3) of the Income- tax Act, 1961 ( 'the Act' for short). 2. In both the appeals, the assessee has raised identical grounds of appeal and the grounds of appeal as raised in ITA No. 929/Chd/2009 read as under : 1. That Commissioner of Income Tax (Appeals) erred on facts and in law in confirming the action of the assessing officer in disallowing expenses on account of renovation/interior decoration expenses incurred at the leased office premises, treating the same to be capital in nature, invoking Explanation 1 to section 32 (1) of the Act except the stationery, security, telecom, statutory and miscellaneous expenses. 2. That Commissioner of Income Tax (Appeals) erred on facts and in law in not following the directions of the Tribunal wherein, the Tribunal directed that all revenue expenditures, particularly expenditure on travel, should be treated as revenue in nature. 2.1 Without prejudice, the Commissioner of Income Tax (Appeals) erred on facts in law in not directing allowance of depreciation on expenses, alleged to be capital expenditure, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. In view thereof, the Assessing Officer upheld the additions made in the earlier assessment order on account of both issues i.e. addition on account of enterprise expenses and repair/renovation expenses. 7. The Commissioner of Income Tax (Appeals) allowed the claim of the assessee vis- -vis the enterprise expenses holding that the expenditure was on account of payments made to Bharti and V-SAT for the purpose of connectivity. The claim of the assessee that the payments were made to telecom companies for the usage of leased lines and not on account of certain equipments was accepted by the Commissioner of Income Tax (Appeals) and the claim of the assessee was allowed. In respect of second claim on account of renovation of leased premises, the Commissioner of Income Tax (Appeals) considered the import of Explanation 1 to section 32 of the Act and observed that the question arising in the appeal was whether large scale expenditure incurred by the assessee was within the definition of doing of any work or improvement of building. The Commissioner of Income Tax (Appeals) further observed that a hall has been converted into a full fledged top class show room. In other words, the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther 224 ITR 414 (S.C) iii) M/s Saravana Spinning Mills P.Ltd. 293 ITR 201 (S.C) 8. The judicial precedents relied upon by the assessee being not by the jurisdictional High Court were not relied upon by the Commissioner of Income Tax (Appeals) and in view thereof, the expenditure incurred by the assessee except certain expenses, which had been allowed by him, were treated as capital in nature. The assessee is in appeal against the said order of Commissioner of Income Tax (Appeals). The revenue is in appeal against the deletion of addition of enterprises expenses. 9. The ld. AR for the assessee pointed out that the Tribunal while deciding the issue at page 62 of the Paper Book had deliberated upon the legality of the claim of the assessee and thereafter vide para 54 and 55 at page 165 of the Paper Book had directed the Assessing Officer to give a factual finding in respect of the claim of the expenditure. Admittedly, the assessee had claimed the expenditure totaling ₹ 5.21 Cr under the head repair/renovation of two office premises which had been taken on lease by the assessee. The ld. AR for the assessee pointed out that even if the provisions of the Explanation to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeals) while deciding the issue had elaborated the scope of the proceedings which had to be decided in line with the directions of the Tribunal. Further, the reliance of the Commissioner of Income Tax (Appeals) on various case laws was held to be distinguishable and the ld. AR for the assessee pointed out that the said decisions were not applicable to the facts of the present case. The ld. AR for the assessee further filed a gist of broad propositions of the case and went through the same and pointed out that the expenditure incurred by the assessee at ₹ 5.21 Cr was on account of various heads out of which certain expenditures have been allowed by the Commissioner of Income Tax (Appeals) as revenue expenditure and the balance has been held as expenditure of capital nature. The ld. AR for the assessee further placed reliance on various case laws in relation to the allowability of each sub-head of expenditure booked under the head repair/renovation expenses and we shall make reference to the same at the relevant time. The ld. AR for the assessee has elaborated upon the distinguishing features of the case laws relied upon by the Commissioner of Income Tax (Appeals). 10. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss of manufacture and sale of food and healthcare products. The issues raised in the present appeal are pursuant to the issue being set aside by the Chandigarh Bench of Tribunal in assessee's own case vide order dated 21.03.2007 reported in 112 TTJ 94. The only issue raised in the appeal filed by the assessee is against the allowability of the renovation expenditure incurred on the leased premises. 14. During the year under consideration, the assessee had incurred expenses on repair and renovation of leased premises at DLF Centre and JSR Delhi which were treated as deferred revenue expenditure in the books of account at ₹ 5.21 Cr in assessment year 2000-01 and ₹ 47,41,243/- in assessment year 2001-02. In the first round of assessment proceedings, the said expenditure was held to be capital in nature by both the Assessing Officer and the Commissioner of Income Tax (Appeals). The Tribunal (supra) vide order dated 21.03.2007 vide paras 49 to 55 had deliberated upon the issue at length. The Assessing Officer had disallowed the claim of the assessee in view of the Explanation 1 to section 32(1) of the Act and held the same to be capital expenditure, which reasoning wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penditure is incurred at renovation and repairs and is, therefore, to be treated as revenue cannot be accepted forthwith. The correct import of the Explanation is that even the expenditure incurred on renovation and repairs of a leased building is includible in the purview of the Explanation 1, provided the said expenditure is of capital nature. If it is found that the expenditure is of revenue expenditure, then notwithstanding that it is incurred on a leased building, the same will not fall within the purview of the Explanation 1 to Section 32 (1) of the Act. Now therefore, it would be of utmost importance to ascertain the nature of the expenses incurred by the assessee in this regard. The details of the expenses in question have been placed at page 64 to 65 of the Paper book. We have also perused the orders of the lower authorities and find that the Assessing Officer as well as the CIT(Appeals) had proceeded on the assumption, evidently without making any verification, that the expenses are of capital nature merely because they are incurred on a leased premises. The aspect as to whether or not the expenditure is of revenue or capital in nature is depending on its factual conto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... within the purview of Explanation 1 to section 32(1) of the Act. After perusing the details of expenses placed at pages 64 to 65 of the Paper Book (then) the Tribunal observed that both the Assessing Officer and Commissioner of Income Tax (Appeals) had disallowed the claim of the assessee as these were incurred on a leased premises. It was further held that the aspect as to whether or not the expenditure was revenue in nature was not considered by the lower authorities. The finding of the Tribunal was that the heads of expenditure were numerous and inter-alia include travel expenses, statutory expenses, shifting/installation expenses etc. which purportedly were of revenue in nature. However, the matter was set aside to the file of Assessing Officer to verify the facts vis- -vis other expenditure heads as the requisite details were not available on record. The Assessing Officer was directed to only exclude such expenditure which are of capital nature within the purview of Explanation 1 to section 32 (1) of the Act. The Assessing Officer was also directed to consider the case-laws adverted to by the assessee before the Tribunal in determining the nature of the expenditure in questio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rbed where the revenue has not challenged the said order of the Tribunal before the High Court. In view thereof, only the nature of the expenditure could be gone into by both the Assessing Officer and the Commissioner of Income Tax (Appeals) to adjudicate the issue. Accordingly, we proceed to decide the nature of expenditure and whether the same is capital or revenue in nature by considering each item of expenditure. 18. The assessee has furnished written submissions and the relevant para for adjudicating the issue read as under : - In the set aside proceedings, the assessing officer again disallowed the entire expenses on the ground that no detail/evidence had been made available, which is factually incorrect. - The assessing officer failed of appreciate that details of the aforesaid expenditure Incurred on leased premises at DLF Gurgaon and New Delhi were duly filed vide letter dated 30.04.2007 and 03.04.2007 respectively [refer Ito 13 of PB for A.Y. 2000-01]. - On perusal of the details of the expenses incurred placed at pages 14 and 15 of the paper book for assessment year 2000-01, it will kindly be noticed that renovation expenses comprises of, inter alia, the foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee reflect that the assessee has incurred expenditure of ₹ 71.31 lacs on electrical and fire detection systems, against which sample bills of ₹ 16.35 lacs were filed upon record. The assessee has further incurred ₹ 33.71 lacs on sanitary fittings at DLF Gurgaon office and the bill of ₹ 18.08 lacs and ₹ 8.88 lacs had been filed on record. Further, the assessee had incurred expenditure of interior/partition through M/s M.S. Decorators at ₹ 201.30 lacs and ₹ 49.24 lacs + ₹ 40.51 lacs in assessment year 2001-02 through M/s Sachdeva Sons on doors and partition totaling ₹ 89.75 lacs. The assessee has placed on record bill for ₹ 31.60 lacs and further bills for ₹ 16.24 lacs and ₹ 40.51 lacs. The bills of the said party M/s Sachdeva Sons are placed on record from page 42 to 85. The perusal of the bills reflect the said party to have carried on brick work for walls, pillars, parakit in cement motor and also providing RCC for A.C. ducts/pipes. Further, it has also carried out work under the sub- head concrete i.e. providing and laying M-20 grade re-enforce cement providing flooring by granite i.e. laying of granite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on'ble Court was with regard to the amount spent in fixing wooden panels to cover up the cracks and ugly spots on the walls and the Courts held that as the wooden panels on removal were not of much value and could not be re-used, said expenditure was of revenue in nature. 22. The next reliance was placed by the ld. AR for the assessee on Roger Enterprises (P) Ltd. Vs CIT [169 Taxman 41 (Del)] wherein the assessee had undertaken renovation work on leased premises i.e. change in flooring by replacing mosaic marble and the Hon ble Court allowed the claim of the assessee. 23. Another reliance by the ld. AR for the assessee was on CIT vs Hede Consultancy Pvt. Ltd. [258 ITR 380] for the proposition that expenditure incurred on conversion of godowns into office premises taken on lease was revenue expenditure. 24. The ld. AR for the assessee further placed reliance on CIT Vs Escorts Finance Ltd. [205 CTR (Del) 574] for the proposition that amount spent on providing wooden partition, painting of leased premises, carrying out repairs to make the premises workable was revenue expenditure as the nature of repairs was not of enduring character so as to categorize the same as capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) further placed reliance on CIT Vs Sarvana Spinning Mills Vs CIT 293 ITR 201 (SC) and Ballimal Naval Kishore another Vs CIT 224 ITR 414 (SC). In the above two cases, the issue was in connection with the current repairs under section 30 (a)(i) of the Act. The ld. AR for the assessee pointed out that both these decisions have been referred by the Delhi High Court in CIT Vs Hi Line Pens (P) Ltd. (supra) and the Karnataka High Court in CIT Vs Infosys Technologies Ltd. [246 CTR 371 (Kar)] and the test laid down by the Hon'ble Supreme Court in Empire Jute Co. Vs CIT [124 ITR 1 (SC)] was applied and as the advantage obtained by the assessee was for the purpose of business of the assessee and not for acquisition of capital asset, the same was held to be allowable. It was also observed that where an amount is spent by the assessee, otherwise than as tenant, the amount paid by him on only current repairs would be allowable and where the assessee was occupying the premises as a tenant, the repairs to the premises would be allowable as revenue expenditure. 30. The next sub-head on expenditure is under which consultancy expenses have been paid to Cushman Wakefield, Currie and Brown ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the first round had held that the expenditure incurred under travel expenses, stationery expenses, shifting/installation expenses, were purportedly revenue in nature. The Commissioner of Income Tax (Appeals) has allowed the expenditure of stationery, security services expenses, telecommunication expenses, advertisement and miscellaneous expenses. However, the expenditure relating to traveling and shifting/installation expenses of ₹ 12,63,330/- was not allowed in the hands of the assessee. We find merit in the claim of the assessee in respect of the traveling and shifting/installation expenses at ₹ 12,63,330/- and the same is directed to be allowed as revenue expenditure. 33. Now the only aspect to be considered is the allowability of the expenditure incurred on temporary wooden partition, fittings, white washing etc. and on carpet tiles amounting to ₹ 4.18 Cr and ₹ 72.12 lacs. As referred to by us in the paras herein above, the expenditure incurred by the assessee on the renovation of its office has brought into existence certain items of enduring nature and certain expenditure has been incurred by the assessee on renovation of building which is reven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted as under: It is respectfully submitted that the expenditure on Voice Telecom Circuit ₹ 19,86,581/- and Data/Telecom Circuit Usage ₹ 69,16,888 was incurred on account of payment made to Bharati BT Ltd. for lease line and V-SAT connectivity for the previous year relevant to assessment year under consideration. The amount had been paid for usage of leased line which are necessary for accessing data from various locations. Without the said connectively it is impossible to run and access ERP package. Further it is to be appreciated that the usage charges are only period cost and have no benefit of enduring nature. Such expenditure was incurred by assessee to facilitate and streamline the assessee's day to day management and trading operations and. with a view to increase the efficiency of the operations and maintenance of vital data, which was necessary for carrying on the business more efficiently and did not result in any addition to capital assets. The aforesaid expenses were part of ERP implementation and were not of enduring nature. Once the expenses on implementation of ERP package are treated as of revenue nature there can not be any reason not to treat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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